Multi-Country Payroll Outsourcing Set to Continue Riding a 20% Growth Wave According to Everest Group | Press Release

Providers invest in AI, RPA and other next-gen digital solutions to improve employee experience with payroll systems.

The Multi-Country Payroll Outsourcing (MCPO) market —one of the fastest growing markets in the human resources (HR) outsourcing space— is set to continue riding a multi-year growth wave of 20 percent, according to Everest Group. This momentum is fueled by the rising appreciation enterprises have for the MCPO value proposition as well as increasing provider maturity.

Although MCPO service providers have performed well with respect to the traditional drivers (cost reduction, process standardization and compliance), buyers expect more in terms of next-generation technologies and strategic support. In fact, drivers for MCPO adoption are slowly shifting from the traditional to next-generation ones, which include factors such as better employee experience, better insights through analytics, and access to next-generation digital solutions such as artificial intelligence (AI) and robotic process automation (RPA).

“The shift we’re seeing in MCPO adoption is from an arbitrage-first to a digital-first play,” said Anil Vijayan, practice director at Everest Group. “This is creating a significant challenge for providers, because although most buyers express fairly high satisfaction levels with the ability of their providers to deliver on the traditional metrics, buyers are expressing a fairly low satisfaction level with providers with respect to next-generation metrics. Providers need to address this gap between expectations and perceived performance.”

The leading players in the MCPO landscape—namely ADP, NGA Human Resources, and TMF Group—have done just that; they have constantly innovated and invested in developing technological capabilities to differentiate themselves from others in the market.

One growing area of technology investment is employee experience solutions, where next-generation technologies are being used to enhance both employee empowerment and employee engagement. For example, greater empowerment  can be achieved through advanced employee self-service portals, omnichannel experiences, and investments that enable rapid response and accuracy. Employee engagement  can be enhanced through HR systems that are easy to use, provide a consistent experience across sub-processes, have an intuitive look and feel, and offer employees a personalized experience, including multi-lingual support.

Everest Group explores these findings and others in a recently published report: “Multi-Country Payroll Outsourcing (MCPO) – Annual Report 2019 – Persistent Growth Amidst Evolving Propositions.” This research provides a comprehensive analysis of the global MCPO market across various dimensions such as market overview and key market trends, buyer adoption and solution trends, and service provider landscape.

Additional key findings in this report include:

  • Buyers headquartered in North America and Europe, the two most mature markets, are the leading adopters of MCPO globally. Rising adoption is seen from the emerging markets of Asia Pacific and Latin America.
  • The market has witnessed strong adoption by small-sized multinational corporations (MNCs), which are spread across two to five countries. The large market segment also has witnessed a resurgence of activity, with many large enterprises venturing into large multi-continent deals.
  • The small market segment witnessed a dip in the average deal size, while the mid- to large-sized segments witnessed a significant increase due to a rise in large multi-country deals.
  • ADP, NGA Human Resources and TMF Group dominate the MCPO market in terms of market revenue. The three companies cumulatively constitute over 50 percent of the total market revenue.

Multi-Country Payroll Outsourcing, Already a $1.5 Billion Industry, Posts a 23% Growth Rate | Press Release

Employers turn to MCPO to enhance employee payroll experience, retain talent

The Multi-Country Payroll Outsourcing (MCPO) market is one of the fastest growing markets in the HR outsourcing space, growing at a compound annual growth rate of 19 to 23 percent between 2014 and 2016 to cross the US$1.5 billion mark. This momentum is likely to continue for the next two years due to the rising appreciation for the MCPO value proposition and increasing provider maturity, according to Everest Group.

Enhancing employee experience with payroll processes is likely to become a key driver for MCPO, particularly because talent retention has become a vital and challenging business requirement.

“Talent retention is one of the biggest challenges employers face today, and the payroll process is a crucial employee touch point, so employers are ramping up their investments in technology to provide a more sophisticated user experience,” said Anil Vijayan, practice director at Everest Group. “This includes getting rid of multiple sign-ins; presenting a consistent look, feel and function across all pages; offering fast-loading and friendly interfaces; providing dynamic visualizations of data; and, of course, ensuring reliable, easy-to-use mobile access.”

Enterprise buyers also are becoming increasingly aware of the other key benefits that  the MCPO construct provides:

  • better control and visibility of payroll operations across multiple countries through consolidated reporting and analytics
  • compliance with regulations, particularly as repercussions of failed compliance have become harsher and the legislative landscape is changing rapidly
  • cost reduction, directly through labor arbitrage and technology as well as through efficiencies derived from centralization, standardization and vendor consolidation

Everest Group explores these findings and others in a recently published report: “Multi-Country Payroll Outsourcing (MCPO) – Annual Report 2017 – Evolution of Drivers and Enablers in a Rapidly-growing Market.” This research provides a comprehensive analysis of the global MCPO market, including buyer adoption trends across geographies, regional trends, emerging solutions and the service provider landscape.

***Download complimentary report abstract here***

Additional key findings in this report include:

  • North America and Europe are relatively more mature and bigger MCPO markets, and they accounted for a large chunk of the global deal activity. Asia Pacific and Latin America are emerging as strong MCPO markets on their own. Local buyers in these geographies, especially Asia Pacific, are playing an important role in shaping these markets.
  • In terms of buyer size, smaller firms continue to dominate the MCPO market adoption through simple deals spanning a few countries.
  • The MCPO market is mostly industry-agnostic. Services, hi-tech and IT, and manufacturing are the leading adopters of MCPO globally, with industries such as healthcare and energy showing promising upticks.
  • While core payroll subprocesses such as “gross-to-net,” payroll distribution and reconciliation remain fundamental to the construct, ancillary processes such as those for contact centers and time-and-attendance are also increasingly being included
  • Emerging areas of technology investment include analytics, automation and enhancing employee experience through UI improvements. Other major areas of investment include enhancing in-country and multi-language capabilities and meeting compliance needs.

Multi-country Payroll Outsourcing: The Changing Shape of Technological Advancements and Analytics | Sherpas in Blue Shirts

The multi-country payroll outsourcing (MCPO) market has grown at a CAGR of more than 30 percent during the last three years, and we expect this momentum to continue. And while this high growth rate may provide ample opportunities to MCPO providers, increasing competition is constantly pushing them to add more value to their offerings and invest in innovative solutions. As technology is the backbone of any global payroll solution, it takes center stage in this investment spend.

Three primary types of technology solutions enable gross-to-net calculations for multiple countries:

  • Single platform – Essentially a single system on one database that handles core payroll processing (gross-to-net) for all countries. This is appropriate for organizations that have a sizeable number of employees in each country of operation and want to replace their existing HRIS solutions.
  • Aggregated – Involves separate in-country software systems that process payroll at the country level. The payroll data from each country is then aggregated to provide a consolidated view to the buyer. This solution is better suited to an organization that has a small employee population spread across multiple countries with a large employee base in others and wants to leverage its own incumbent payroll platform.
  • Integrated hybrid – This is essentially a mix of a single platform solution and an aggregated solution.

Although the aggregated technology model is currently the most prevalent in the global payroll market, use of single platform and integrated hybrid solutions is rapidly emerging. Service providers are moving toward a single platform solution to enable greater centralization and standardization. However, given the difficulty in covering countries with small employee populations, it will become increasingly challenging to cover the entire globe with a single platform solution, especially as organization continue to expand into new locations. Hence, we expect adoption of the integrated hybrid model will increase in the coming years.

Consistent with other HR services areas, buyers’ interest in innovative, value-add, “consumerized” MCPO solutions is rising quickly. There is a growing need to enable employees to work from any remote location, at any point in time, and on any device of their choice. To cater to this demand, service providers are investing in the development of applications for mobile devices and smart phones. These apps will, for example, allow employees to receive notifications of their salary payments on their mobile phones, view their payroll summaries instantly, and submit their timesheets. In addition to increasing accuracy and timeliness, this consumerization also enhances employee engagement, satisfaction, and self-service.

Analytics and reporting is another hot segment within the MCPO market. Companies are increasingly looking for ways to better plan their future course and align their workforce to their business goals. Using business analytics on payroll data can help organizations achieve these objectives by providing critical insights related to absenteeism and employee turnover, aligning salary payouts (a significant chunk in P&L of many companies) with talent availability, and assisting in long term planning by way of salary budgeting and forecasting. Another area that both buyers and service providers are now concentrating on is consolidated global reporting (or single currency reporting). Although companies achieve some level of standardization and centralization from a “one provider for multiple countries” payroll model, truly global payroll is still evolving. Employing analytics around exchange rate synchronization can help companies achieve a consolidated reporting system. Service providers, therefore, need to focus on analytics as a value-added offering.

Buyers looking to achieve competitive advantage need to evaluate providers’ offerings on a holistic basis, rather than simply looking at their core payroll solution. As gross-to-net and other payroll sub-process capabilities have become table stakes, service providers now need to offer more value-add to obtain a first mover advantage. Technology and analytics capabilities can help them gain this competitive, differentiating edge.

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